The union representing 18,000 county workers is quite unhappy with the frugal new math adopted by the county retirement system, and it’s threatening to bail.

Rather than fork over more money now to fund benefits later, as the Orange County Employees Retirement System would have them do, workers are making goo-goo eyes at the state pension system, which makes more optimistic economic assumptions that would drain less from their wallets.

In O.C., right-wing extremists are trying to make public pensions appear unsustainable, the union has charged.

“As the politically appointed members of the OCERS Board of Trustees continue to make decisions aimed at artificially and unnecessarily inflating costs for taxpayers and employees, it’s only responsible for ratepayers and city officials to weigh other options,” Jennifer Muir of Orange County Employees Association, county government’s largest workers’ union, told us by email.

“We have an obligation to protect our members’ retirement security from being held hostage for political purposes, which is exactly what is happening on the OCERS board.”

We at The Watchdog found these threats to jump ship in favor of the California Public Employees Retirement System – threats echoed by court employees and sheriff’s deputies – rather fascinating, and decided to drill down on them a bit. Can county workers really snatch their ball away and go next door to play?

Turns out the fence to the neighbor’s yard is rather high and difficult to climb.

SETUP

Let us step back just a bit. The public pension wars have taken an interesting twist here in Orange County, where once upon a time, officials granted rather generous retirement benefits to workers, then came to Jesus over unfunded liabilities of some $5.7 billion.

Benefits have been cut back for new workers; workers are kicking in more to cover their pension costs; and – in what seems like an egghead accounting move, but one that wallops people’s pocketbooks – OCERS decided to embrace more sober expectations on what its investments will earn going forward, and how long it will take to pay the debt down.

Now, this sobriety is happening all over the nation among responsible retirement system types. CalPERS, for example, recently reduced its expected return rate by a quarter percent – from 7.75 percent to 7.5 percent.

But OCERS went further, reducing its expected return rate by double that – half a percent – from 7.75 percent to 7.25 percent.

Ouch, say county workers.

If you need $5.7 billion and you expect lower returns, you need to cough up more cash right now.

This cash will need to come from both the county government and its workers.

BATTLE

And so there’s this pitched political battle at – of all crazy places – the OCERS board, where county workers are demanding that OCERS raise the assumed rate of return to (a more CalPERS-esque) 7.5 percent, and/or adjust how long it will take to pay the debt down.

Assuming better returns (and more time to pay) would mean workers – and the county government – pay less out of their pockets and into the pension fund each year. Leaving everyone more mad money.

If OCERS doesn’t embrace a more rosy view of the future, workers say, they will revolt and rush into the waiting arms of CalPERS, where returns are expected to be brighter.

“When the costs of retirements are being artificially inflated, we must look at alternatives,” said Tom Dominguez, president of the Association of Orange County Deputy Sheriffs. “If there is an ability to save taxpayer money and continue to provide the same benefit, then it’s an option that needs to be considered.”

“Access to critical public services and sound fiscal stewardship of public resources must be balanced,” said Superior Court workers in a missive to OCERS’ top brass. “The Court needs to explore alternatives to OCERS to fulfill that obligation.”

CalPERS, then, is the pretty girl next door.

DEFECTION?

There are two questions at work here. The first is, can individual employees just up and leave OCERS for CalpERS? The answer there is apparently “no.”

As the law now stands, the County of Orange and its workers simply cannot withdraw from OCERS, said Julie Wyne, OCERS’ assistant CEO for external and legal operations. They would need to obtain a legislative change to be able to do so, she said via email.

OCERS, you see, is this legal beast. The good people of Orange County passed a proposition creating it in 1944 (under the County Employees Retirement Act of 1937), and OCERS was officially born as the county’s retirement plan manager in 1945.

The only way an individual can move from OCERS to CalPERS is if they leave the county (or other OCERS-contracted agency) and get a job with a CalPERS-covered employer, said CalPERS spokeswoman Amy Norris by email.

The second question is, can the county Board of Supervisors and/or other plan sponsors (such as the O.C. Fire Authority) decide to ditch OCERS for CalPERS? The answer there is clearly “yes.”

Those separate little governments that are in OCERS could walk, so long as their boards voted to do so, and took their (likely prohibitive) share of unfunded liabilities with them.

The county, OCERS’ big gorilla, also could leave if the Board of Supervisors decided to do so.

UNDETERRED

“OCEA in the past has looked into moving into CalPERS, and it can be done,” said the union’s Muir by email.

“It would require support from the Board of Supervisors; however we are currently working on a possible legislative strategy to modify the 1937 Act for Orange County only,” she said.

“OCEA General Manager Nick Berardino … has hosted meetings with a variety of legislators, actuaries and attorneys. If legislative action proves to be an appropriate vehicle, legislation specific only to Orange County will be introduced in January that could allow Orange County employees as well as plan sponsors to leave OCERS. Much more work needs to be done on this option but we are feeling pretty good about what we have learned so far.”

Wait. Let’s hear that again. The support of the supervisors? Yes; it would be the county Board of Supervisors’ job to approve a switch, and right now, that seems unlikely.

“I don’t know about the wisdom of having an employee have the ability to shop a system,” said Supervisor (and pension warrior) John Moorlach. “What OCEA is trying to do is put leverage on the board of OCERS to not be more conservative in its assumptions. I see it more as bluster than anything else.”

Supes are also still weighing whether to appoint a more frugal or more optimistic member to OCERS’ board of directors. Smart money is on the former, but the fight has been a pitched one.

And just because CalPERS looks like the more attractive choice now doesn’t mean it will always be. Change may well be in the air for CalPERS as well: It’s in the midst of studying mortality rates, asset allocation and, yes, even that 7.5 percent return rate that looks so good from O.C. Depending on what CalPERS’ board decides to do, these things could change employer rates, CalPERS’ Norris said.

CalPERS is doing this to maintain the sustainability of its plans, and has no comment on the OCEA’s proposal, she said.

Why should you care? OCERS provides retirement benefits to 14,000 county and local government retirees, and invests for another 26,000 public workers who haven’t retired. Its fiscal health matters to all of them – and to everyone else – as taxpayers are ultimately on the hook for making good on public pension promises.

Stay tuned.

Orange County Employees Retirement System

As of December 31, 2012, OCERS’ funding status was 62.52 percent, meaning it had less than two-thirds of what it currently owes on hand.

Assets were $9.5 billion; liabilities were $15.1 billion.

Its unfunded liability – the difference between what it had, and what it owed — was $5.7 billion.

Sforza birthed the OC Watchdog column aiming to keep a critical (but good-humored) eye on governments and nonprofits, large and small. It won first place for public service reporting from the California Newspaper Publishers Association in 2010. Sforza contributed to the OCR's Pulitzer Prize-winning investigation of fertility fraud at UC Irvine, covered what was then the largest municipal bankruptcy in America‘s history, and is the author of "The Strangest Song," the first book to tell the story of a genetic condition called Williams syndrome and the extraordinary musicality of many of the people who have it. She earned her M.F.A. from UCLA's School of Theater, Film and Television, and enjoys making documentaries, including the OCR's first: "The Boy Monk," a story that was also told as a series in print. Watchdogs need help: Point us to documents that can help tell stories that need to be told, and we'll do the rest.

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